Is Search Advertising Reaching a Plateau?

Search advertising has been all the rage the last few years, leaving sellers of traditional display advertising to fear a slow death as Google and other search engines siphon off all of the ad dollars. But after a dramatic run-up in search, there’s evidence that we’re reaching a plateau.

I try to avoid the dangerous business of prognostication, but consider these statistics that have caught my eye the past few days:

SEARCH MARKETING COSTS SURGED DURING the fourth quarter, thanks to a combination of increasing cost-per-click prices and a growth in overall number of clicks, according to data released Tuesday by DoubleClick’s Performics unit.

Overall, the “cost-per-keyword” rose to around $55 in December, from around $26 at the end of August, according to the report. To arrive at a cost-per-keyword, Performics combines cost-per-click with the volume of clicks; the figure represents the average cost to a marketer of purchasing a keyword for the entire month. The agency declined to release information about average cost-per-click.

and

Marketers also went on a holiday spending spree, upping the number of keywords under management. Active keywords–meaning keywords that triggered a sponsored search link resulting in at least one click–increased by 58 percent from the fourth quarter of 2004.

In January, keyword pricing fell to pre-December levels, as happened last year, said Chris Henger, vice president of marketing and product development for Performics. “The slope in the trend line went right back down, similar to how it performed in years past,” Henger said.

As retailers deal with rising competition over Internet paid-search keywords, they need to rely less on search engine marketing and develop a more comprehensive, multi-channel strategy, says Aaron Kessler, senior research analyst who follows e-retailers for investment research firm Piper Jaffray & Co.

Ã¢â‚¬Å“Three years ago, Internet search was a good value for any retail category, but now itÃ¢â‚¬â„¢s not always the value it was,Ã¢â‚¬Â� he says. Ã¢â‚¬Å“ItÃ¢â‚¬â„¢s a great marketing channel when it works, but many retailers have become too reliant on it.Ã¢â‚¬Â�

The key to successful search marketing, he and other experts say, is to find a way to fit it into a complete marketing strategy. Ã¢â‚¬Å“Our SEM effort has been very profitable because we manage it as part of an overall online advertising portfolio and because of our strong brand, which we build through multi-channel national advertising and in-store service,Ã¢â‚¬Â� says Sam Taylor, vice president of online stores and marketing for Best Buy Co. Inc., adding that Best Buy will aggressively expand its budget for search engine marketing this year, just as it did last year.

ONLINE MARKETERS SERVED MORE THAN 138 billion display ads last month, marking a 12 percent increase from December, according to new data from Nielsen//NetRatings AdRelevance.

Financial services advertisers accounted for the most impressions by far–22 percent last month, up slightly from 21 percent in January 2005. Telecoms purchased 19 percent of all online ads, more than double last year’s 8 percent. Retail goods and services marketers accounted for 16 percent of impressions, compared to 15 percent last year.

Where did marketers spend their online ad dollars? E-mail sites were a favorite choice, garnering 35.1 percent of impressions–up from both last year’s 20.2 percent and last month’s 32.1 percent. The bulk of those ads were on Yahoo and MSN; Yahoo Mail drew 22.3 percent of all impressions, while MSN Hotmail garnered 9.6 percent.

General community sites accounted for 13.1 percent of impressions–up from 6.3 percent last year–while portals and search engines claimed 11.8 percent of impressions, down from last year’s 16.5 percent share. MySpace once again surged in popularity with marketers, drawing 10.1 percent of all impressions. In December, MySpace accounted for 4.8 percent of ads, which marked a downturn from September’s high point so far of 12.4 percent.

I don’t think there’s evidence that search advertising is about to decline, but the growth spurt may be coming to and end. With ad dollars still pouring into digital media, the flattening of search ad spending suggests that the growth of display advertising could represent a trend, as marketers try to balance long-term brand building with short-term sales efforts.

Even Best Buy, which promises to “aggressively expand its budget for search engine marketing this year” is still focused above all on building its “strong brand.”